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Hetereogeneous firms, growth and the long shadows of business cycles

Author

Listed:
  • Cristiana Bendetti-Fasil
  • Giammario Impullitti
  • Omar Licandro
  • Petr Sedlacek
  • Adam Hal Spencer

Abstract

R&D is procyclical and a crucial driver of growth. Evidence indicates that innovation activity varies widely across firms. Is there heterogeneity in innovation cyclicality? Does innovation heterogeneity matter for business cycle propagation? We provide empirical evidence that more productive firms are less procyclical in innovation. We develop a model replicating this observation, with selection as the driver of heterogeneous innovation cyclicality. We then examine how heterogeneous innovation and growth influence business cycle propagation. Dynamics of firm entry and exit, coupled with heterogeneous cyclicality, significantly amplify TFP shock propagation. Business cycle fluctuations give substantial welfare losses, with firm heterogeneity contributing significantly.

Suggested Citation

  • Cristiana Bendetti-Fasil & Giammario Impullitti & Omar Licandro & Petr Sedlacek & Adam Hal Spencer, 2024. "Hetereogeneous firms, growth and the long shadows of business cycles," Discussion Papers 2024/03, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    • Handle: RePEc:not:notcfc:2024/03
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    References listed on IDEAS

    as
    1. Aghion, Philippe & Hémous, David & Kharroubi, Enisse, 2014. "Cyclical fiscal policy, credit constraints, and industry growth," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 41-58.
    2. Gadi Barlevy, 2004. "The Cost of Business Cycles Under Endogenous Growth," American Economic Review, American Economic Association, vol. 94(4), pages 964-990, September.
    3. Laurence Ball, 2014. "Long-term damage from the Great Recession in OECD countries," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 11(2), pages 149-160, September.
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    More about this item

    Keywords

    Growth; Business Cycles; Innovation; Heterogeneous Firms;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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